Tips and tricks and what you need to know about part time flexible employees in Xero payroll. How to prevent errors, and why they happen.

Part Time Flexible Employees in Xero Payroll

Less admin, more freedom.
Less admin, more freedom.
Part Time Flexible Employees in Xero Payroll


Part Time Flexible Employees in Xero Payroll

A lot of the troubleshooting I do in Xero Payroll relates to part time flexible employees.  These employees might work unpredictable and different numbers of days or hours each week. Xero Payroll copes with this perfectly well as long as a few key concepts are understood and the correct process followed.   I’ve detailed most of these in the blog called Annual Leave in Xero Payroll  but here is a summary and a couple more points relating to PHOLs and SL.

Minimum Hours and Leave Balances

In some situations there really are no standard hours. But whatever the hours are, they can only be represented in Xero Payroll averaged over the week for the same number of hours per day.  This may not be accurate, and you may need to make manual adjustments when leave or PHOLs are paid out.

With part time flexible hours, Xero Payroll works best with minimum hours which become the basis for leave accruals, including annual leave and sick leave.  These minimum hours keep track of the employees annual leave balance through accruals, pay outs and any adjustments.  The minimum hours represent the annual leave, whether the employee works more or less on average.

ALERT If a part time employee signs a new contract with new minimum hours then this will be updated in the Employment Tab.  At this time it’s important to review the annual leave and sick leave balances as often a manual adjustment will be required.   

The Employment Tab hours should not be changed in Xero Payroll unless the contract has changed because any change to the standard hours will automatically change future leave accruals automatically. 

Paying out Annual Leave

Separate to keeping track of the annual leave entitlement, is determining how much to pay out when annual leave is taken and with part time flexible employees the hourly pay out rate will rise if the employee has been working more than minimum hours on average. 

TIP: I recommend always running a pay, even if there are no earnings.  For example  if an employee is taking unpaid leave, record it.  This is because if you are trying to calculate Average Weekly Earnings manually, you will most likely run a Gross Pay report for the last 52 weeks.  The report show how many payruns have been run, which is great and makes it easy.  But if there are missing payruns from when an employee has been on unpaid leave, then you will need to manually account for these which means a manual count of the payruns, checking for any missing ones. 


Aside from annual leave, with part timers there is the question of whether they should be paid on any particular day for sick leave,  public holidays and some other types of leave – ie was that day was a regular working day or not.  If the employee does not work regular hours or days then using timesheets will allow you to look back and check the working pattern.

If the day in question was a regular working day and the employee is going to be paid,  then comes the question of how many hours to pay out.

ALERT:  Relevant Daily Pay (RDP) may not be calculated automatically by Xero Payroll. A manual calculation may be required.  

Xero Payroll calculates RDP using only the information in the employees’ employment tab.  So if working hours are irregular you will likely need to work out RDP manually and overwrite what  Xero Payroll suggests. 

For example if an employee works 3 hours on a Friday, and 5 hours Mon-Thurs this would be shown in the employment tab as 4.6 hours x 5 days.   However, for a PHOL being paid for a Friday, only 3 hours would be paid.  And for a PHOL on a Monday 5 hours would be paid.

Or if your business uses a 4 week average to determine RDP you will also need to calculate this manually. 

As per the legislation, if RDP can’t be calculated, then Average Daily Pay (ADP) is used instead.

ALERT: Number of days paid must be accurate for ADP to calculate correctly.  Xero will not use timesheet information to count the number of days paid – you need to manually enter it if it’s different from the standard hours .  Xero calculates ADP using gross earnings over the previous 52 weeks and then divides by the number of days paid that have been entered.  

Sick Leave Entitlement in Days

The Sick Leave entitlement for part-time employees is still 10 days per year with a maximum of 20 days. As an example, if an employee has standard hours of 1 day a week, 7 hours a day, then their 10 day entitlement will be 70 hours.  They only get sick leave paid out if they are sick on that one day of the week they normally work.

AL entitlements when changing from full time to part time

In some industries it’s common for employees to change their contracted hours from time to time.  When a employees hours are reduced, say from full time to part time, their annual leave calculation is affected by the previous full time work hours for a year after the change of hours. 

ALERT: If the employee takes AL soon after the change in hours, they will be paid almost as much as when they were working full time. This is because the payout is based on their 52 week average.  It takes a whole year for this to reduce back down so that the new standard hours are not higher than the average.

Here’s an example:

How annual leave payout rates can increase

Rather than having a variation to a contract changing from full time to part time some businesses choose to terminating the original full time contract and pay out all leave, then start new employment part time.   An HR expert should be consulted if this is being considered.

Annual Leave in Advance when hours have increased

Xero Payroll calculates Annual Leave in advance based on the standard hours in the employment tab. 

Annual leave in advance is shown when the tickbox in the Leave Tab is selected. The annual leave in advance is added to the annual leave balance to show how much leave can be paid out without overpaying if employment ended suddenly. 

ALERT: Annual leave in advance is calculated  based on standard hours. There is a risk when an employee has recently changed from a low number of standard hours to a higher number of standard hours.  If the employee takes annual leave in advance and then suddenly finishes employment, they may owe money to the employer.

In this example given below, if all annual leave in advance was paid out and then employment finished suddenly the employee would have been overpaid $2442.08 which the employer would then be asking to be paid back.

An employee starts work on 1 January 2022 working approximately 10 hours a week at $30 ph.  They work for 9 months (with a couple of days off here and there) so that on 1 October 2022 they have accrued $900 in holiday pay.

Then from 1 October their hours change to 35 hours a week.  

At the end of that week, they have earned an additional $84 holiday pay  so their holiday pay at 8 October is $984. 

So perhaps at this point the employee needs to take some time off, and asked for all their AL in advance to be paid out.  Although it's not compulsory to do so, the employer agrees. 

At that point in time, Xero Payroll would calculate their Annual Leave in advance as  15.2 days (280days/365days) x (140hours/7 hours).   Roughly 3 weeks which is about 3/4 of the year worked - makes sense.

With this employees new hours, 15.2 days would equate to 15.2 x 7hrs = 106.4 hours.   If this was paid out at that time, it would be paid as 106.4 hrs x $35ph  = $3724 (the new weekly standard earnings are higher than an average since the start of employment). 

Then for example, the following week perhaps something happens and the employee has to terminate, and never comes back to work.  So a final pay is calculated.  At that point the holiday pay balance will be the $984 + $297.92  (8% of the leave paid out last week) = $1281.92  

They have been overpaid $2442.08 in this situation.

To confirm the value of how much can be paid out without the risk of overpaying, check the Leave Liability report - it uses the value of AL, plus Holiday Pay.  

All would be well as long as the employee keeps working and earning, and on their anniversary 1 Jan 2023 they accrue 140 hours AL, and the 106.4 hours is subtracted at that point.